Monday, May 3, 2021

The government might try to hide inflation


Talk to any farmer, manufacturer, or general contractor. They will all tell you that prices are through the roof on everything. Everything. Inflation is totally out of control.


Consumers began to feel that earlier this year. They’ll be feeling it in earnest in the coming months.


But, the government and the Federal Reserve don’t want you to know that. They want you to believe that inflation isn’t that strong. Over the past month or so, they’ve been hitting the talk and news show circuit to downplay the issue.  


If they admitted it existed it would call into question lockdowns, ramped-up government spending, various forms of economic stimuli, and hopes for a strong economic rebound. After all, what good is all this “free” money if you can’t buy anything with it?

To further advance their narrative, don’t be surprised if sometime this year the Biden Administration says we should go all-in with the Chained Consumer Price Index.


The Obama Administration toyed with applying it to Social Security in 2013 and 2014. The GOP Congress attached it to federal tax reform in 2017, applying its use to personal and corporate taxes for the first time ever.


Now, from a power broker’s standpoint, there’s a real need for it as a means to manipulate the numbers.  

In the traditional CPI method, the cost of a fixed basket of goods and services is tracked over time and that growth in value represents the inflation rate.


The Chained CPI takes that straightforward calculation and turn it on its head, making it subjective and something of a fantasy. Economists adjust the basket for assumed changes in buying behavior; no longer is it a designated collection of items. In their eyes, if a shopper won’t buy a beef roast because it went up X dollars, he would buy a replacement meat, like chicken. So, the Chained CPI adjusts for the modified basket, as theoretical as it may be, and tracks the price of the chicken, noting its price variance instead of the roast that used to be in its place.

Since the modified basket will feature lower-priced replacements, the Chained CPI will produce an inflation rate that is lower than the standard CPI. On average, in times of “normal” inflation, it cuts the accepted inflation rate by a third of a percentage point per year.


But, these aren’t normal time. What will the difference be in a wild inflationary era like this? We could be talking about multiple percentage points. Just look back at 2018, for example. Then, inflation was pegged at 2.44%. The Chained CPI brings that down to 1.5% percent.


Going to Chained CPI is more than just a marketing gimmick. It will also yield big fiscal results for Washington.


It’s been said that over the first decade alone, a fully-integrated Chained CPI (one applied to both revenues and expenses) would save $390 billion on federal spending. It would reduce the deficit by a trillion dollars in its second decade. That all comes from increased revenues and lower expenses.  

Those new revenues will be achieved by sticking it to those who pay income taxes.


Since wages will in many cases rise at a rate greater than what will be a much smaller inflation rate under Chained CPI, more people will jump into higher tax brackets – more quickly, too - since those brackets are continually adjusted for inflation. At the same time, personal tax loopholes will grow at an equally smaller rate, preventing people from deducting higher dollar amounts that would have tracked the CPI previously in place. We’re not talking peanuts: According to federal studies published a few years back, over the first 10 years of a Chained CPI the tax burden for a lower-income family will be 15 percent higher.

If the chained CPI is extended to Social Security the feds will see significant cost savings gleaned from those who rely on the government for a retirement income.


Social Security beneficiaries count on their benefits growing at a rate in step with inflation. In recent years the calculated rate of inflation has not been high enough to warrant a significant cost-of-living adjustment (COLA), if one at all. 2018’s COLA was 2.8%, the second highest over the 2010s -- and there were no COLAs in 2010 and 2015 and 2016 came in at a paltry 0.3%. Last year’s was 1.3%.  


Seniors have been really feeling that. For 10 years now, their retirement income hasn’t been growing in step with what they’ve been seeing at the grocery store or, especially, in their property tax bills. Imagine that for the long haul, but worse, under Chained CPI. Someone collecting Social Security will receive $560 less per year after 10 years and almost $1,000 less per year after 20 years.

The weight of the Chained CPI will bring a good many people down – taxpayers and beneficiaries alike. It’s an unscientific manner to calculate one of our economy’s most important statistics and an easy, almost clandestine way for Washington to earn and save money – and save face -- without making the hard, important decisions that they should.




From the 03 May 2021 Greater Niagara Newspapers and Batavia Daily News

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